Comcast delivered on moderate expectations for the third quarter, matching Wall Street’s lowered broadband subscriber growth target and topping revenue and earnings forecasts. A postpandemic recovery at NBCUniversal continued to unfold, while the Tokyo Olympics strongly boosted advertising revenue in the period. Comcast also reached its debt-reduction target and bought back a chunk of stock in the third quarter.
Slowing customer growth has been a concern for cable investors of late, and the industry’s stocks have lagged behind the market since the summer. Comcast (ticker: CMCSA) management’s commentary about the fourth quarter was the key to Comcast’s report on Thursday—and it suggested more subscriber-growth weakness ahead.
Comcast stock was down 0.3% Thursday afternoon trading, versus a 0.8% rise for the S&P 500. Other cable stocks were mixed:
Charter Communications (CHTR) shares slipped 0.9% while
AlticeUSA (ATUS) shares were up 2.2%.
Comcast said Thursday that it earned 86 cents per share in the third quarter, or 87 cents after adjusting for one-time costs and benefits—up 34% from a year ago. That compared with Wall Street analysts’ average estimate for 75 cents in adjusted EPS. Comcast’s revenue came in at $30.3 billion, versus analysts’ $29.9 billion consensus, and up 19% from a year ago. Adjusted Ebitda—short for earnings before interest, taxes, depreciation, and amortization—was $9 billion in the quarter, up 18% year over year, and ahead of Wall Street’s $8.5 billion estimate. Comcast’s third-quarter net income was $4 billion and free cash flow was $3.2 billion—both about $1 billion above what analysts had forecast.
Remarks from Comcast’s Chief Financial Officer Michael Cavanagh at an investor conference in mid-September shook Wall Street’s confidence in the cable industry’s all-important broadband subscriber-growth forecasts for the third quarter. He warned of slowing additions from the pandemic-boosted periods of 2020. Analysts’ average estimate of Comcast’s third-quarter broadband-customer net additions dropped to 297,000, from around 400,000, after Cavanagh’s comments.
Comcast hit that lowered forecast: The company’s Xfinity service added a net 300,000 broadband subscribers last quarter. That compares with net adds of 633,000 in the third quarter of 2020, and 379,000 in the third quarter of 2019.
Dave Watson, CEO of Comcast’s cable business, said Thursday that he expected total 2021 broadband net adds to be around 2019 levels of 1.4 million, which is down from earlier guidance of mid-single digit growth from 2019’s pace. It suggests broadband subscriber additions of some 285,000 in the fourth quarter—while Wall Street consensus calls for 381,000. That number will come down as analysts update their models after Thursday’s report.
“We’re still in a fluid environment…but there’s a really long runway of growth in broadband,” Watson said.
Xfinity lost a net 408,000 video customers—slightly better than expected—and added 285,000 wireless lines—its best quarter ever, and just above consensus. It was a big third quarter for customer growth in the US wireless industry.
Comcast’s cable segment brought in $16.1 billion in sales and $7.1 billion in adjusted Ebitda—up 7% and 10%, respectively, and each about $200 million ahead of consensus estimates. Telecom businesses have operating leverage—profits rise and fall faster than revenue.
“I see it as a solid quarter,” Telemus CIO Matt Dmytryszyn tells Barron’s. “I know some people are concerned about the broadband adds, but the pace now is what they were seeing before the pandemic. I don’t think there needs to be a whole lot of acceleration [for Comcast] to continue to drive profit margins higher.”
The broadcast of the Tokyo Olympics on NBC’s networks and online channels strongly boosted results at NBCUniversal in the third quarter—especially when compared with the Covid-depressed third quarter of 2020. Revenue for the segment was up 58%, to $10 billion, including $1.8 billion of revenue attributable to the Olympics. Subtracting that, NBC Universal sales were still up 30% year over year. The reopening of theme parks and movie theaters helped boost sales in those divisions as well, while the Peacock streaming service continued to grow revenue but lose money.
The overall NBCUniversal sales of $10 billion was about $600 million ahead of the consensus estimate, and segment adjusted Ebitda of $1.3 billion was $100 million ahead.
At Sky, Comcast’s European pay-TV unit, revenue was up 4% year over year after adjusting for currency changes, to $5 billion—short of the $5.2 billion consensus. Adjusted Ebitda jumped 89%, to $971 million, versus the $712 million consensus estimate.
CEO Brian Roberts said on Thursday morning’s earnings call that Comcast had reached its leverage target, having paid down significant debt since the 2018 acquisition of Sky. That means more cash flow for share repurchases—Comcast bought back $1.5 billion of stock last quarter, bringing it to a total of $2 billion since its buyback program resumed in May. Comcast also paid out $1.2 billion in dividends in the third quarter. The stock has an annual yield of 1.9% and a market value of about $248 billion.
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